How are goods that go into inventory and are not sold during the current period treated in GDP terms?
A) They are counted as intermediate goods and so are not included in current-period GDP.
B) They are counted in current GDP only if the firm that produced them sells them to another firm.
C) They are included in current-period GDP as inventory investment.
D) They are included in current-period GDP as consumption.

Question

Quizplus · Accepted Answer

Goods that go into inventory and are not sold during the current period are treated as inventory investment and are included in current-period GDP. This is because the production of these goods represents new economic activity and therefore contributes to GDP. It is only when they are sold to final consumers that they are counted as consumption. Thus, option C is correct. Intermediate goods, as mentioned in option A, are not counted in GDP as they are used as inputs to produce other goods. Option B is incorrect as the sale of goods to another firm does not determine their inclusion in current GDP. Option D is also incorrect as goods held in inventory are not counted as consumption until they are sold to final consumers.

How Are Goods That Go into Inventory and Are Not